Jetstar Pacific Losses etc..
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Jetstar Pacific Losses etc..
From the SMH today. JQ Pacific, part of Joyce's suite of 'incredible businesses".....
So 31 million lost in fuel hedging, a significant amount of money paid to the Vietnamese to 'arrange' the release of the two execs as well as whatever ongoing operational losses have been incurred from the day to day running of the business.
The two execs come home to a promotion and a fat bonus.
Yet it's Qantas International which is the millstone around the groups neck. Not JQP, JQA, or JQI.
Secret cables lift the lid on the detention of two executives, writes Matt O'Sullivan.
It was several days before Christmas 2009 when Daniela Marsilli and Tristan Freeman were pulled aside at Ho Chi Minh City's international airport for questioning.
The Qantas executives were due to board flights home for well-deserved holidays in Australia after toiling for several years as senior bosses of Vietnam's second-largest airline, Jetstar Pacific. In an emotional separation, they were barred from leaving, forcing their young families to fly home without them.
So began a six-month ordeal for the Australians, which included grillings at the hands of Vietnam's feared secret police, the Ministry of Public Security.
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Yet their predicament did not surprise some workmates in Vietnam, who had first become concerned in early 2009 about what might unfold. They feared that Australians sent to the developing nation to help run Qantas's part-owned budget offshoot could be detained because of multi-million dollar losses.
Months later, Qantas management commissioned its then chief risk officer, Rob Kella, to begin a risk assessment of Jetstar Pacific. His findings are commercial-in-confidence.
But it was all too late. The Australians' brush with the iron hand of the Communist Party apparatus and the deep uncertainty took a toll on their state of mind. It also reinforced the dangers for foreign companies of doing business in a developing country where the state can criminalise ordinary commercial activities.
Their living nightmare has been cloaked in secrecy ever since.
The two executives at the centre of the diplomatic storm jumped on the first flight out of Ho Chi Minh once the travel ban was lifted on June 29 last year. They are now back in senior positions at Qantas's headquarters in Sydney.
Marsilli, a former boss of the Adelaide charter airline National Jet, is at Qantas's engineering division; Freeman, 38, is in a strategy role.
Qantas says neither wants to talk about their traumatic experience.
But secret diplomatic cables obtained by the Herald under freedom-of-information laws give a rare insight into the frantic efforts involved in winning their release.
It also reveals the sensitivity of a case that went to the highest echelons of government.
When they were finally allowed to return to Australia last year, Qantas insisted that the Ministry of Public Security's investigation ''was quite separate to any commercial relationship between State Capital Investment Corporation and Qantas''. The SCIC is the investment arm of Vietnam's communist government and the largest shareholder in Jetstar Pacific. Qantas is the other shareholder with a 27 per cent stake.
But one of the diplomatic documents reveals that a deal between Qantas and the SCIC did play a part in helping to lift the travel bans on Marsilli and Freeman.
Three days before the pair's final meeting with a two-star general from the secret police, Qantas and the SCIC ''reached agreement on a commercial package that would also count as mitigation under Vietnamese law, so allowing the travel restrictions on Tristan Freeman and Daniela Marsilli to be lifted''.
The revelation about the deal with the SCIC is contained in a secret document stamped ''consular media talking points'', which was co-authored by Bassim Blazey, a senior official from the Department of Foreign Affairs and Trade in Canberra. It was sent to federal ministers' offices on June 30 last year.
The two Qantas executives found themselves at the centre of the diplomatic storm in Vietnam after Jetstar Pacific lost $US31 million on fuel-hedging contracts in 2008. The names of Marsilli and Freeman - as the chief operating officer and chief financial officer - were on the contracts.
Airlines regularly enter hedging contracts to stabilise the volatile cost of jet fuel. But Vietnam is a country that is only slowly opening the door to capitalism and where the loss of money at a state-owned enterprise - even a relatively small amount - can be a capital offence.
Throughout most of their ordeal, Marsilli and Freeman had no idea when they would be free to go or whether they would be held personally responsible for the losses at Jetstar Pacific. Although interpreters were provided, they did not have access to lawyers at some interviews.
Qantas says the ''commercial package'' referred to by DFAT was a heads of agreement, which gave a ''commercial framework governing the expectations'' of the two shareholders and their continuing involvement in Jetstar Pacific. It will not reveal further details because they are ''commercial-in-confidence''.
However, Qantas confirmed to the Herald last year that it did extend ''for a number of years'' a put option shortly before the two executives were released. Put options are used to attract investors by giving them the opportunity to recall their investment if the company fails to live up to expectations.
It is important because, if Qantas had exercised the option, it would have meant that the investment arm of Vietnam's government would have had to find about $43 million to pay the Australian airline.
As much as parts of the Vietnamese establishment might have wanted Qantas out, an exercising of the option is likely to have meant the SCIC would have had to seek financial help from their political masters in Hanoi.
The Australians' shock detention prompted Qantas to set up a high-level taskforce. Those tasked with trying to bring them home included Steve Jackson, Qantas's chief of security and a veteran of the Australian Federal Police, David Epstein, the head of corporate and government affairs, and Brett Johnson, the general counsel who flew regularly to Vietnam in the early days to get a handle on the legal side of the case.
Apart from Epstein, a former adviser to Kevin Rudd, the rest of his government relations team knew little about what was going on.
DFAT also involved heavyweights such as Blazey, the former head of the Howard government's Iraq Task Force. Described as a ''hard-core DFATer'', Blazey keeps a low profile despite serving in a top post in the department's south-east Asia bilateral branch. Graeme Swift, Australia's consul-general in Ho Chi Minh, was also heavily involved because most of the action was in Vietnam's financial capital.
Public information about Marsilli and Freeman last year might have been scant, but the secret cables reveal the high level of work going on behind the scenes. In just one month, DFAT churned out 18 secret cables, email conversations and so-called ''consular media talking points'' about the two executives' plight.
One of them is so secret it is classified AUSTEO, which stands for Australian eyes only. Such classification of cables from the Australian embassy in Hanoi is rare.
The department has ruled 12 of the cables should be ''totally exempt'' from release to the Herald, citing concerns Australia's relations with Vietnam could be damaged. DFAT said the documents detail its ''dealings, opinions of and relationships with Vietnamese officials and their activities''.
Qantas has also sought secrecy. It has told the department that ''release of the material could reasonably be expected to affect its business affairs, both in Vietnam and other regions''.
One of the cables deemed ''commercial in confidence'' - dated June 4, 2010 - details an email conversation about a letter received from the SCIC. That same day Australia's ambassador to Vietnam, Allaster Cox, met Vietnam's Finance Minister, Vu Van Ninh. The SCIC answers to Vietnam's Finance Minister.
Less than three weeks later, Qantas and the SCIC, the majority shareholder in Jetstar Pacific, reached the agreement on the ''commercial package'' that would help lift the travel restrictions on the Australian pair.
Then, on June 29 last year, a ''confidential'' DFAT cable shows Marsilli and Freeman fronted a meeting before a two-star general, Tran Trung Dung, and a colonel, both from Vietnam's feared secret police.
''Having concluded their assistance with the investigation, the two Australians were advised by the Vietnamese authorities … that they were free to depart,'' states a DFAT document on June 30, 2010.
It highlights the ''wide coverage in Vietnamese and Australian media'' and shows the Australian ambassador was involved in a ''series of meetings between Qantas and senior Vietnamese officials over the period''.
But DFAT has completely blacked out another cable revealing an ''unofficial translation'' of the Qantas executives' meeting with the secret police.
Qantas refutes any suggestion that a settlement was reached to free its two executives. But it has confirmed that the Ministry of Public Security ''had regard'' to the heads of agreement with the SCIC when deciding to allow Marsilli and Freeman to leave Vietnam.
''Officials believed that it showed the commitment of both joint venture parties to the commercial viability of Jetstar Pacific. This is what is referred to as potential mitigation in the DFAT cable,'' Qantas says.
''Under Vietnamese law, investigators examining financial losses are entitled to consider the commercial circumstances and commitment of relevant parties to running a viable business when deciding whether an investigation should proceed.''
The investigation into the losses at Jetstar Pacific was originally the job of Vietnam's Economic Police. The fact that the Ministry of Public Security later became involved reveals the high stakes, as well as the fear and intimidation brought to bear.
The secret police invokes terror in the minds of the Vietnamese public. Regarded as a law unto its own, the Ministry of Public Security is a secretive part of the communist machinery in a country where the buck stops with the military and the party president and prime minister.
The two Australians' brush with the shadowy side of Vietnam's political and judicial system might now be behind them. But it has again highlighted the risks for Australian companies of doing business in developing countries
It was several days before Christmas 2009 when Daniela Marsilli and Tristan Freeman were pulled aside at Ho Chi Minh City's international airport for questioning.
The Qantas executives were due to board flights home for well-deserved holidays in Australia after toiling for several years as senior bosses of Vietnam's second-largest airline, Jetstar Pacific. In an emotional separation, they were barred from leaving, forcing their young families to fly home without them.
So began a six-month ordeal for the Australians, which included grillings at the hands of Vietnam's feared secret police, the Ministry of Public Security.
Advertisement: Story continues below
Yet their predicament did not surprise some workmates in Vietnam, who had first become concerned in early 2009 about what might unfold. They feared that Australians sent to the developing nation to help run Qantas's part-owned budget offshoot could be detained because of multi-million dollar losses.
Months later, Qantas management commissioned its then chief risk officer, Rob Kella, to begin a risk assessment of Jetstar Pacific. His findings are commercial-in-confidence.
But it was all too late. The Australians' brush with the iron hand of the Communist Party apparatus and the deep uncertainty took a toll on their state of mind. It also reinforced the dangers for foreign companies of doing business in a developing country where the state can criminalise ordinary commercial activities.
Their living nightmare has been cloaked in secrecy ever since.
The two executives at the centre of the diplomatic storm jumped on the first flight out of Ho Chi Minh once the travel ban was lifted on June 29 last year. They are now back in senior positions at Qantas's headquarters in Sydney.
Marsilli, a former boss of the Adelaide charter airline National Jet, is at Qantas's engineering division; Freeman, 38, is in a strategy role.
Qantas says neither wants to talk about their traumatic experience.
But secret diplomatic cables obtained by the Herald under freedom-of-information laws give a rare insight into the frantic efforts involved in winning their release.
It also reveals the sensitivity of a case that went to the highest echelons of government.
When they were finally allowed to return to Australia last year, Qantas insisted that the Ministry of Public Security's investigation ''was quite separate to any commercial relationship between State Capital Investment Corporation and Qantas''. The SCIC is the investment arm of Vietnam's communist government and the largest shareholder in Jetstar Pacific. Qantas is the other shareholder with a 27 per cent stake.
But one of the diplomatic documents reveals that a deal between Qantas and the SCIC did play a part in helping to lift the travel bans on Marsilli and Freeman.
Three days before the pair's final meeting with a two-star general from the secret police, Qantas and the SCIC ''reached agreement on a commercial package that would also count as mitigation under Vietnamese law, so allowing the travel restrictions on Tristan Freeman and Daniela Marsilli to be lifted''.
The revelation about the deal with the SCIC is contained in a secret document stamped ''consular media talking points'', which was co-authored by Bassim Blazey, a senior official from the Department of Foreign Affairs and Trade in Canberra. It was sent to federal ministers' offices on June 30 last year.
The two Qantas executives found themselves at the centre of the diplomatic storm in Vietnam after Jetstar Pacific lost $US31 million on fuel-hedging contracts in 2008. The names of Marsilli and Freeman - as the chief operating officer and chief financial officer - were on the contracts.
Airlines regularly enter hedging contracts to stabilise the volatile cost of jet fuel. But Vietnam is a country that is only slowly opening the door to capitalism and where the loss of money at a state-owned enterprise - even a relatively small amount - can be a capital offence.
Throughout most of their ordeal, Marsilli and Freeman had no idea when they would be free to go or whether they would be held personally responsible for the losses at Jetstar Pacific. Although interpreters were provided, they did not have access to lawyers at some interviews.
Qantas says the ''commercial package'' referred to by DFAT was a heads of agreement, which gave a ''commercial framework governing the expectations'' of the two shareholders and their continuing involvement in Jetstar Pacific. It will not reveal further details because they are ''commercial-in-confidence''.
However, Qantas confirmed to the Herald last year that it did extend ''for a number of years'' a put option shortly before the two executives were released. Put options are used to attract investors by giving them the opportunity to recall their investment if the company fails to live up to expectations.
It is important because, if Qantas had exercised the option, it would have meant that the investment arm of Vietnam's government would have had to find about $43 million to pay the Australian airline.
As much as parts of the Vietnamese establishment might have wanted Qantas out, an exercising of the option is likely to have meant the SCIC would have had to seek financial help from their political masters in Hanoi.
The Australians' shock detention prompted Qantas to set up a high-level taskforce. Those tasked with trying to bring them home included Steve Jackson, Qantas's chief of security and a veteran of the Australian Federal Police, David Epstein, the head of corporate and government affairs, and Brett Johnson, the general counsel who flew regularly to Vietnam in the early days to get a handle on the legal side of the case.
Apart from Epstein, a former adviser to Kevin Rudd, the rest of his government relations team knew little about what was going on.
DFAT also involved heavyweights such as Blazey, the former head of the Howard government's Iraq Task Force. Described as a ''hard-core DFATer'', Blazey keeps a low profile despite serving in a top post in the department's south-east Asia bilateral branch. Graeme Swift, Australia's consul-general in Ho Chi Minh, was also heavily involved because most of the action was in Vietnam's financial capital.
Public information about Marsilli and Freeman last year might have been scant, but the secret cables reveal the high level of work going on behind the scenes. In just one month, DFAT churned out 18 secret cables, email conversations and so-called ''consular media talking points'' about the two executives' plight.
One of them is so secret it is classified AUSTEO, which stands for Australian eyes only. Such classification of cables from the Australian embassy in Hanoi is rare.
The department has ruled 12 of the cables should be ''totally exempt'' from release to the Herald, citing concerns Australia's relations with Vietnam could be damaged. DFAT said the documents detail its ''dealings, opinions of and relationships with Vietnamese officials and their activities''.
Qantas has also sought secrecy. It has told the department that ''release of the material could reasonably be expected to affect its business affairs, both in Vietnam and other regions''.
One of the cables deemed ''commercial in confidence'' - dated June 4, 2010 - details an email conversation about a letter received from the SCIC. That same day Australia's ambassador to Vietnam, Allaster Cox, met Vietnam's Finance Minister, Vu Van Ninh. The SCIC answers to Vietnam's Finance Minister.
Less than three weeks later, Qantas and the SCIC, the majority shareholder in Jetstar Pacific, reached the agreement on the ''commercial package'' that would help lift the travel restrictions on the Australian pair.
Then, on June 29 last year, a ''confidential'' DFAT cable shows Marsilli and Freeman fronted a meeting before a two-star general, Tran Trung Dung, and a colonel, both from Vietnam's feared secret police.
''Having concluded their assistance with the investigation, the two Australians were advised by the Vietnamese authorities … that they were free to depart,'' states a DFAT document on June 30, 2010.
It highlights the ''wide coverage in Vietnamese and Australian media'' and shows the Australian ambassador was involved in a ''series of meetings between Qantas and senior Vietnamese officials over the period''.
But DFAT has completely blacked out another cable revealing an ''unofficial translation'' of the Qantas executives' meeting with the secret police.
Qantas refutes any suggestion that a settlement was reached to free its two executives. But it has confirmed that the Ministry of Public Security ''had regard'' to the heads of agreement with the SCIC when deciding to allow Marsilli and Freeman to leave Vietnam.
''Officials believed that it showed the commitment of both joint venture parties to the commercial viability of Jetstar Pacific. This is what is referred to as potential mitigation in the DFAT cable,'' Qantas says.
''Under Vietnamese law, investigators examining financial losses are entitled to consider the commercial circumstances and commitment of relevant parties to running a viable business when deciding whether an investigation should proceed.''
The investigation into the losses at Jetstar Pacific was originally the job of Vietnam's Economic Police. The fact that the Ministry of Public Security later became involved reveals the high stakes, as well as the fear and intimidation brought to bear.
The secret police invokes terror in the minds of the Vietnamese public. Regarded as a law unto its own, the Ministry of Public Security is a secretive part of the communist machinery in a country where the buck stops with the military and the party president and prime minister.
The two Australians' brush with the shadowy side of Vietnam's political and judicial system might now be behind them. But it has again highlighted the risks for Australian companies of doing business in developing countries
The two execs come home to a promotion and a fat bonus.
Yet it's Qantas International which is the millstone around the groups neck. Not JQP, JQA, or JQI.
another $50mill recently sent up to help keep things solvent, or so I heard 
They are taking us to the cleaners...
They are taking us to the cleaners...
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yes mate, lucky they got out,
capital offence for losing money in Vietnam,
.
but just like the cargo fiasco,
"Both are now back in Australia but
Jetstar Pacific's CEO Luong Hoai Nam is in jail."
and just what will she bring to engineering as head of strategy?
didn't her last lot of lames flee town after making some scathing
report to the viet casa?
capital offence for losing money in Vietnam,
.but just like the cargo fiasco,
"Both are now back in Australia but
Jetstar Pacific's CEO Luong Hoai Nam is in jail."
and just what will she bring to engineering as head of strategy?
didn't her last lot of lames flee town after making some scathing
report to the viet casa?
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At the end of the fight is a tombstone white, with the name of the newly deceased.
An epitapth drear: "A fool lies here, who tried to hussle the East".
Just bear this in mind when doing business in VN. The Communist party is the State and in charge of business. This means that when you do business there, you do business with high ranking party members as investors who have the full weight of the Party, the police, judiciary and the government on their side (not yours).If you lose their money, they will expect to be 'compensated'.
An epitapth drear: "A fool lies here, who tried to hussle the East".
Just bear this in mind when doing business in VN. The Communist party is the State and in charge of business. This means that when you do business there, you do business with high ranking party members as investors who have the full weight of the Party, the police, judiciary and the government on their side (not yours).If you lose their money, they will expect to be 'compensated'.
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Smell it smell it, now take it.
What a mess !!!
Compensation,fines, big exec bonuses
Taking bets now as to how long it will take for them to burn through their
3 billion odd cash lying around with all these leaches sucking them dry.
Anthill sums it up well in that it will be a tombstone
RIP
Compensation,fines, big exec bonuses
Taking bets now as to how long it will take for them to burn through their
3 billion odd cash lying around with all these leaches sucking them dry.
Anthill sums it up well in that it will be a tombstone
RIP
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Parliament of Australia: Senate: Committees: Rural Affairs and Transport Committee: Pilot training and airline safety including consideration of the Transport Safety Investigation Amendment (Incident Reports) Bill 2010: Submissions Received
submission 49 - page 7-8 and attachments 4, 5 and 6 for the background on airworthiness issues at J*V and illegal LAME sackings.
submission 49 - page 7-8 and attachments 4, 5 and 6 for the background on airworthiness issues at J*V and illegal LAME sackings.
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Very interesting reading, Gingerbread. Are those in charge of maintenance at J*P aware that if maintenance fraud is discovered as contributing to a fatal hull loss, they could wind up being executed?
I think that it is time that they read up on local laws.
A Firing squad with AK-47s, at Police headquarters in District 1, along with the drug peddlers, I believe...
I think that it is time that they read up on local laws.
A Firing squad with AK-47s, at Police headquarters in District 1, along with the drug peddlers, I believe...
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Framer, if you are a user of a commodity, a hedge allows you to buy that commodity in the future at a fixed price today.
In the example of an airline, you can go to the futures market and purchase a contract for delivery at some distant time & lock in a price- here's an example
Say you wish to consume 1000 barrels of oil in July 2012 & you wish to lock in a price today to allow you to plan with a known price. You go to the futures market - crude futures chain and you will see a price of 102.73 (Jul 1 price, this will change). You purchase your contract and that is the price you will pay per barrel in July 12. A future is an binding obligation to either buy or sell some commodity in the future, with the price locked in when the contract is made.
The mechanics of the futures market, however "mark to market" each day. Lets say that the July 2012 contract declines to exactly 100 tonight. this represents a 2.73 loss on that contract x 1000 barrels = $2730. This money is transferred out of your account at the close of business and into the account of the seller of the contract. In other words there is a daily mark to market transfer depending upon the settlement price every day. Note also that you must deposit and initial margin prior to the purchase of the contract, and then a further maintenance margin to hold the contract over night.
However, there is another way to do this, you can purchase an option over the future, so you could purchase a July 2012 call option, for which you have the right, but not to obligation to purchase the July 12 futures contract at some point prior to July 12. For this you pay a premium.
For example, you could purchase a Jul 12 $100 call option, for which you pay a premium* - lets say the option contract trades at $6.50. So, in this case at most you will pay
is 106.50 ($100 + $6.50) per barrel. Note the subtlety at most, and the difference between the straight future which is you will pay 102.73 per barrel. Note, that the premium is a once off payment, and there is no margin requirement if you are buying, there is no nightly "mark to market". However, the value of the option contract could decline to 0 if oil declines well below 100 close to Jul 12.
(The reason you pay at most 106.50 with the option contract is because if oil declines to say $50, your option contract is worthless therefore you don't exercise it, but you can then go into the open market & purchase a contract or spot at $50, therefore you only pay $55.60 per barrel, however, the holder of the futures only contract will still pay 102.73 as they )
So, putting the clues together, my guess is that J* Pacific hedged somewhere near the top of the oil market using futures, not options. They then were required to pour large amounts of cash into their trading accounts to offset the daily mark-to-market with the oil price crash. Not only that, the exchange probably increased margins to protect the integrity of the exchange as the price and volatility increased, further increasing the cash required (This paper loss would eventually be offset by the purchase of the fuel physical fuel at a much lower price).
*The premium is the composed of the any intrinsic value + a premium for the time value of money, the volatility of the underlying contract & the length of time remaining, see the Black Scholes Pricing Model for further details.
In the example of an airline, you can go to the futures market and purchase a contract for delivery at some distant time & lock in a price- here's an example
Say you wish to consume 1000 barrels of oil in July 2012 & you wish to lock in a price today to allow you to plan with a known price. You go to the futures market - crude futures chain and you will see a price of 102.73 (Jul 1 price, this will change). You purchase your contract and that is the price you will pay per barrel in July 12. A future is an binding obligation to either buy or sell some commodity in the future, with the price locked in when the contract is made.
The mechanics of the futures market, however "mark to market" each day. Lets say that the July 2012 contract declines to exactly 100 tonight. this represents a 2.73 loss on that contract x 1000 barrels = $2730. This money is transferred out of your account at the close of business and into the account of the seller of the contract. In other words there is a daily mark to market transfer depending upon the settlement price every day. Note also that you must deposit and initial margin prior to the purchase of the contract, and then a further maintenance margin to hold the contract over night.
However, there is another way to do this, you can purchase an option over the future, so you could purchase a July 2012 call option, for which you have the right, but not to obligation to purchase the July 12 futures contract at some point prior to July 12. For this you pay a premium.
For example, you could purchase a Jul 12 $100 call option, for which you pay a premium* - lets say the option contract trades at $6.50. So, in this case at most you will pay
is 106.50 ($100 + $6.50) per barrel. Note the subtlety at most, and the difference between the straight future which is you will pay 102.73 per barrel. Note, that the premium is a once off payment, and there is no margin requirement if you are buying, there is no nightly "mark to market". However, the value of the option contract could decline to 0 if oil declines well below 100 close to Jul 12.
(The reason you pay at most 106.50 with the option contract is because if oil declines to say $50, your option contract is worthless therefore you don't exercise it, but you can then go into the open market & purchase a contract or spot at $50, therefore you only pay $55.60 per barrel, however, the holder of the futures only contract will still pay 102.73 as they )
So, putting the clues together, my guess is that J* Pacific hedged somewhere near the top of the oil market using futures, not options. They then were required to pour large amounts of cash into their trading accounts to offset the daily mark-to-market with the oil price crash. Not only that, the exchange probably increased margins to protect the integrity of the exchange as the price and volatility increased, further increasing the cash required (This paper loss would eventually be offset by the purchase of the fuel physical fuel at a much lower price).
*The premium is the composed of the any intrinsic value + a premium for the time value of money, the volatility of the underlying contract & the length of time remaining, see the Black Scholes Pricing Model for further details.
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No problems Framer. Just to clear it up, it isn't gambling if you are either a producer or consumer of the commodity - just the opposite, there is no gambling whatsoever. You are locking in a price at some point in the future which gives you certainty.
On the other hand if you aren't either of these, then yes it is gambling.
On the other hand if you aren't either of these, then yes it is gambling.
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Thanks BB.
Framer essentially you hedge to protect yourself against an adverse event. A user of fuel, risks a rise in fuel price - therefore buys something which gains in price, as the price of fuel goes up - your gain on that asset, offsets the extra you pay for fuel.
Futures are attractive for this due to leverage; that is, you don't have to put down the full value of the asset you're buying - however just as the potential gains are magnified, so are the potential losses.
So if your hedge asset falls in price, it's because your fuel cost has gone down.
So unless you use options (as BB has explained), the hedge will lock in your price, meaning you don't benefit from a lower fuel price - but neither do you suffer from a higher fuel price.
I would also not be surprised if JQ used futures (or perhaps a swap) which locked in the price (rather than options) as managing an option position would be a little harder than just putting a futures / swap position on and walking away. A futures position would give you certainty so you can budget more accurately.
Framer essentially you hedge to protect yourself against an adverse event. A user of fuel, risks a rise in fuel price - therefore buys something which gains in price, as the price of fuel goes up - your gain on that asset, offsets the extra you pay for fuel.
Futures are attractive for this due to leverage; that is, you don't have to put down the full value of the asset you're buying - however just as the potential gains are magnified, so are the potential losses.
So if your hedge asset falls in price, it's because your fuel cost has gone down.
So unless you use options (as BB has explained), the hedge will lock in your price, meaning you don't benefit from a lower fuel price - but neither do you suffer from a higher fuel price.
I would also not be surprised if JQ used futures (or perhaps a swap) which locked in the price (rather than options) as managing an option position would be a little harder than just putting a futures / swap position on and walking away. A futures position would give you certainty so you can budget more accurately.
Last edited by Taildragger67; 4th Jul 2011 at 10:47.
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I would also not be surprised if JQ used futures (or perhaps a swap) which locked in the price (rather than options) as managing an option position would be a little harder than just putting a futures / swap position on and walking away. A futures position would give you certainty so you can budget more accurately.
Another COST TO MAINLINE.
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KARMA
Excellent Post 9 and the reference to the Senate Enquiry
Information provided to the Australian Senate by the ALAEA, yet asked to be confidential by the author of the letter. How did the ALAEA get copies ?
Could be " come back time " for said writer of letter,
Different country and different laws but now back in Aus thanks to the ALAEA via Pprune
Lot's of waiting may have been worth it.
Splash
Information provided to the Australian Senate by the ALAEA, yet asked to be confidential by the author of the letter. How did the ALAEA get copies ?
Could be " come back time " for said writer of letter,
Different country and different laws but now back in Aus thanks to the ALAEA via Pprune
Lot's of waiting may have been worth it.
Splash
The futures and options market is simply a means of transfering risk from those who wish to avoid it, to those who expect to make a profit by assuming it.
An airline selling tickets could easily bankrupt itself if it sold advance bookings based on fuel being cheap and there was a sudden surge in oil prices.
It's because of the futures market that you can lock in a airfare months in advance, surely preferable to not knowing the cost until the day you depart and possibly ending up spending far more than you expected.
An airline selling tickets could easily bankrupt itself if it sold advance bookings based on fuel being cheap and there was a sudden surge in oil prices.
It's because of the futures market that you can lock in a airfare months in advance, surely preferable to not knowing the cost until the day you depart and possibly ending up spending far more than you expected.
Join Date: Jan 2010
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Hey Splashman,
Pertinent points raised. An industrial agenda suited perhaps?
Did the whistleblower end up returning to work for the airline in Vietnam, or do you mean he has been given a job with Qantas or Jetstar in Australia?
GB
Pertinent points raised. An industrial agenda suited perhaps?
Could be " come back time " for said writer of letter,
Different country and different laws but now back in Aus thanks to the ALAEA via Pprune
Lot's of waiting may have been worth it.
Different country and different laws but now back in Aus thanks to the ALAEA via Pprune
Lot's of waiting may have been worth it.
GB